SKC fundamental positions

[skc]

New Position

11/5/2011 Buy 24,165 LBL @ $0.095 = $2,296

Rationale

LBL is an engineering company specialising in surface technologies for the engineering, industrial and mining markets. Very small company (market cap ~$8m) and half owned by the founders of the technology.

Today they released a market update. Revenue for FY10/11 will be $12.7m (up 22%) and PBT of $1.51m (up 147.5%). EPS = ~1.5c after tax. Management is forecasting further growth. One of the division (responsible for all of the profits) is moving to a new premise that is 2.5x the existing size by the end of the financial year. The other division is turning around showing small profit for the half year.

The company has debt ~$0.7m. Operating cash flow was positive $468K in H1 against profit of $363K, so cash conversion is pretty good. If they can continue their growth at say 20% top and bottom line, the share price at PE ~6 is very cheap. Tentative target is PE ~12 or 18c. Usually a thin stock which may be a good thing when it wants to move up. Would have bought more at my entry price but that's all I could get.

 

[skc]

New Position

11/5/2011 Buy 50,000 MBD @ $0.13 = $6,500

Rationale

Marbletrend Group Limited (MBD) manufacture, import, warehouse and distributes
bathroom fittings and products in the Australian market. Key clients include:
Bunnings, Reece, Tradelink, Plumbing Plus, Plumbtec and Mitre10. (From Iress).

Today the company announced a rise in sales revenue across all product categories. The forecast full year revenue is $45m (up 11%) and PBT is $2.2m (up 30%). H1 revenue and PBT were $21.2m and $1.06m, so the second half was another record and the figures are growing nicely. The growth comes from better margin thanks to better product mix, strong $A and cost management. A 0.5c fully franked interim dividend was also declared - giving a potential full year yield of ~7.7%.

The company has manageable debt of ~$3.3m (Interest ~$230K p.a.), and generated operating cashflow of $933K in H1 against the $684K profit.

With projected EPS at 2.6c, share is currently trading at PE ~5. Similar company GWA trades on a PE ~16. Initial target ~ 30c based on PE ~12.

P.S. No idea why the market release contained 'Strictly private and confidential' when it was released to the public

P.P.S. Portfolio cash = $26.5K

 

[skc]

MLA

A couple of announcements recently.

- A broker report is available here http://www.medaust.com/irm/Company/ShowPage.aspx?CPID=1102&EID=14071631. Let's see if it generates some buyers. The share price target is 5.9c based on large growth in revenue and margin improvement over the next few years - similar to why I bought the share.



I always find it interesting that an analyst need to look at the overall market size ($110B for health expenditure in Australia) - who cares when the company's revenue is only $8-10m - it's just rounding error in the whole scheme of things.

- A new contract with UNICEF to supply needle cutters. No specifics about the value of the contract, but revenues will come in this quarter. It's definitely a great client to have on your company profile.

 

[skc]

End of Week 27 Summary

Portfolio value up 20.0%
XJO -0.71% (Last 4711.4, Starting value 4745)
XJOAI +0.06% (Last 34657, Starting value 34639.1)



Comments

Very volatile 2 weeks - the following table shows the range experienced by each position. And the average range was 19.5%. Thankfully the biggest ranges were up.



MBD - This position is probably a bit too large given the size and liquidity of the company. I will probably exit part of this after the ex dividend date 25 May.

MLM - Made a great surge to end the week, thanks to the underlying MTE making good gains. I've also added CBX to the portfolio which were distributed by MLM.

SNL - Someone really wanted to buy them yesterday and crossed a 10c spread (on a 55c share) to buy them at 64c. It finished the week flat in the end.

WHC - The moment of truth next week. Is it going to do a Felix or a Macarthur? Either way this position is draging on and I will be pleased when it is closed.

 

[skc]

WHC - Sale process terminated. Looks like the share will open sub $6. Definitely a good example of how not to manage a position. There were enough signs that things were going bad.

Given that I've already closed my real position some time ago, I will just take today's VWAP as the closing price for this.

 

[skc]

Position Closed

16/5/2011 Sell 1,500 WHC @ $5.63 = $8,445.

Realised P&L = -$1,720.42

Takeover process terminated. Very poorly managed trade (at least for this journal). I got out of IHF, VPG and AMU when their takeovers looked like failing. For some reason I stayed with these guys until the bitter end...

 

[skc]

Position Closed

20/5/2011 Sell 3,000 CBX @ $0.33 = $990.

Realised P&L = $984.

These are the distribution from the MLM position which appeared in my account today. CBX has flagged some cap raising down the track so probably best to get out before the rush... I'd imagine quite a few ex-MLM holders would be selling as well.

 

[CapnBirdseye]

SKC. For what it's worth, I'm following this thread with interest. My MM leaves a good bit to be desired and it's good to follow someone else's methods for FA and MM.

Cheers for sharing this with us,

Capn.

 

[skc]

SKC. For what it's worth, I'm following this thread with interest. My MM leaves a good bit to be desired and it's good to follow someone else's methods for FA and MM.

Cheers for sharing this with us,

Capn.

Aye Captain. Thanks for following. Good to know people are taking interest. On MM I wrote something here that might be of interest...

https://www.aussiestockforums.com/forums/showthread.php?t=22396&p=626488&viewfull=1#post626488

You would start with an overarching framework of position sizing... more stable stocks can afford larger sizes, more volatile stocks smaller size, near-death stocks probably amounts that are inconsequential. This is the first part of risk management.

The second part is the ability to brutally, honestly and correctly assess fundamental facts surrounding the company, and sell when those facts demonstrate (to whatever confidence level the investor deemed appropriate) that the valuation of the company has changed for the worse. This is as good a stop as any price-based stop.

With time based stop I would adopt that when I have a 'time based' event entry... there is a takeover brewing and I will exit in 3 months if nothing comes. You also size your position accordingly. I think if no takeover comes the stock will fall 10%, so I am comfortable allocating $X to the position. This would be similar to the 2% rule (which is start with controlling how much you lose), but it's application is not as precise.

As to judging fundamental reasons - that's a case by case basis so a bit difficult to say here. Market reaction to news will always depend on its starting point and expectations. Is a resource of 200m Tonnes of copper good or bad news? Good if the expectation was 0, bad if the expectation was 500m. Mis-interpreting expectations and news is bad for fundamental investing without a doubt. The same as mis-interpreting price action and volume is bad for technical analysis.

 

[skc]

Position Closed

23/5/2011 Sell 7,000 CIF @ $1.10 = $7,700.

Realised P&L = -$362.6

Rationale

Been holding this one for a while and it has done absolutely nothing. With global markets looking shaky and the end of QE2's impact highly uncertain, I've decided to be more risk adverse and close this position out. The dividends are coming in about a month's time so it will probably have a run now that I've sold it

Cash on hand ~$43.6K

 

[skc]

Position Closed

3/6/2011 Sell 3,000 MYE @ $1.42 = $4,260.

Realised P&L = $6.9 (including dividend and franking credits)

Rationale

Not much update, movement or liquidity on these guys. This share was bought on the basis of growth - I paid PE 13.6 with the purchase and they 'should' by now provide some trading update if my assumption of growth was correct.

With global market being quite shaky and looking for direction, the risk adverse action was to scretch this position.

Cash in hand = $48K

 

[skc]

New Position

3/6/2011 Buy 40,000 PSA @ $0.19 = $7,600.

Rationale

PSA is a rollar-coaster energy company that was a speculators' favourite back in 1997 and 2006. Share price was as high as $6 believe it or not...

Yesterday PSA announced that they've sold their oil interest in China to Horizon Oil for $38m. After the sale, PSA has no debt, ~$50m cash (21.5cps), some producing assets in Texas and some dreams of being a shale oil player.

Normally wouldn't buy anything given the shaky market but with share price below cash it feels relatively safe for a quick 10-15% gain. I will take part profits at the 21.5c mark and let the rest of it run if the speculators decide to return for the 3rd time.

Cash on hand = $40.5K.

 

[skc]

End of Week 30 Summary

Portfolio value up 17.0%
XJO -3.41% (Last 4583.1, Starting value 4745)
XJOAI -1.59% (Last 34087.7, Starting value 34639.1)



Commentry

A bit gloomy all round and the market has been steadily going down for 2 months. Plenty of global uncertainties but that's nothing new.

AAD - S&P changed their classification from A-REIT to Leisure Facilities which means A-REIT funds (eg. Vanguard was a seller) have to sell, causing short term weakness (or so the story goes anyway).

IDM - Rights issue completed at 20c. Will add to the position after shares are received.

MBD - Went ex-div last week for 0.5c fully franked.

MLM - Having a good run despite the weak market thanks to good performance by its subsidary MTE.

 

[skc]

I thought it would be an interesting exercise to see what would have happened if I bought and held all the shares... forget about the fact that none of the position was meant to be buy&hold, and there is not enough cash to hold them all at the same time.



It turned out that, if I simply held every, the current portfolio would be ~$8.5K worse off. The biggest difference makers were:

Losses
SOO - sold 11.5c, now 8c. Difference $3,147 - This stock has really fallen on hard times with the increasing competition in solar market and the winding back of govt incentives.

PGA - sold 9.1c, now 4.3c. Difference $3,360 - Continued fall in revenue and earnings, topped by loss of a key account from its subsidary. The overall sentiment towards the advertising market is also very negative. Glad I exited at the first sign of revenue weakness.

WBA - sold 56c, now 38c. Difference $3,597 - These guys came across a large pile of cash and have no idea how to make money from that. They recently needed to raise further capital, even though 6 months ago their share price was less than cash backing.

Gains
QRN - sold $2.6, now $3.39. Difference $4,867. The most successful IPO that no one saw coming. A trialing stop would have done wonders.

VPG - sold $1.205, now $1.76. Difference $2,800. A takeover offer did come eventually. My analysis was actually pretty spot on - target was $1.80, takeover price? $1.80.

UXC - sold 46c, now 57c. Difference $2,198. It turned out that the writedown announcement that I sold on was the last of the bad news.

Apart from being an interesting exercise in terms of performance review, I did it because I am going to be taking some paternity leave soon, and won't be able to monitor the positions as actively as required. I just wanted to know what would have happened if I just held onto everything - and the results were no good.

What this means is, for my actual personal positions, I will exit some of the shares that I think require constant monitoring. However, for this thread I am going to keep the positions running as per usual, but this will mean that I make some delayed calls if I happen to miss a company moving news here or there.

 

[skc]

Position Closed

20/6/2011 Sell 20,000 BSA @ $0.22 = $4,400.

Realised P&L = -$812 (including dividend).

Rationale

This was a difficult one. There had been no update since the half year reprts back in Feb. The share price however has continued to fall from 32c to 20c. When I bought the share I was looking for ~4c EPS, so on that the PE is now even more attractive.

However, there are a few things going against BSA. It has been mentioned a few times that their foxtel contracts are unperforming, the NBN Co. is playing hardball and companies may not enjoy much profit from doing the rollout work, and they are doing some pretty large projects ($100m+) which are prone to cost overruns...

With the overall market being quite shaky, I am going to take this off the table for now. I will consider re-entering this stock if management provides a positive / reassuring update.

 

[skc]

Partial Position Closed

20/6/11 Sell 5,000 CFE @ $0.42 = $2,100.

Realised P&L = $1,137 (Using FWFO of parcel bought at $0.645).

Rationale

The business model of CFE is to buy distressed assets, prove up resources and sell it off hopefully at a profit - and they have done that fairly successfully in the past.

The main story of CFE is the Marampa Iron Ore project in Sierra Leone, and the MD recently talked about selling at $500m, or IPO for $700m, or bring it to production themselves... (CFE's market cap is only $220m). However, the overall market is no longer that hot when it comes to buying mining assets that are a few years away from production. And CFE could be in danger of holding the parcel when the music stops.

Nonetheless, the asset values are still much higher than the share price by most measures, so I am simply reducing my risk in light of the current market. I think if any good news come along on Marampa, there will be time to get on board and make the money back yet.

 

[skc]

New Position

23/6/2011 Buy 15,000 QML @ $0.20 = $3,000.

Rationale

Takeover offer from the US for 23c a share.
QML sells software for coal mines etc and have a decent revenue and profit growth projections. QML rejected the offer a low ball and rightly so.

A comparable company is RUL which trades at ~12x EBITDA. QML management is expecting EBITDA FY11 ~$3m so at 12x, EV ~$36m. Debt is ~$4m, so equity value ~$32m or 40c per share.

Hopefully an offer north of 30c can be extracted.

 

[Assasin]

Cheers SKC,

I'm enjoying this thread. Your proving what a tough 6 months it's been.
Keep up the great work.:bricks1:

 

[tech/a]

I second that
Anyone who puts up as much detail on an on going trading summary deserves support.
Have you ever thought of a method filter such as
An equity filter IE if your equity chart falls x then paper trade until it returns to an up trend thus preserving open capital
OR
An index filter similar but only take long trades of the index is trending.
OR
Hedging by way of an index short trade where appropriate

Just tossing random ideas around.

 

[skc]

Cheers SKC,

I'm enjoying this thread. Your proving what a tough 6 months it's been.
Keep up the great work.:bricks1:

Thanks. Yes indeed it has been an up and down 6 months... And things aren't exactly rosey down the track either...

I second that
Anyone who puts up as much detail on an on going trading summary deserves support.
Have you ever thought of a method filter such as
An equity filter IE if your equity chart falls x then paper trade until it returns to an up trend thus preserving open capital
OR
An index filter similar but only take long trades of the index is trending.
OR
Hedging by way of an index short trade where appropriate

Just tossing random ideas around.

I have used hedging in various places but by and large they were not sucessful. Usually by the time I start to "fear" enough to put a hedge on the index had bottomed and started to go back up...

Ultimately it comes down to the fact that I've yet to develop a reliable edge in trading indices. If and when I do it will certainly makes sense to do some hedging.